German Small Limited Company (Unternehmergesellschaft)
The German Small Limited Company (UG) was introduced by lawmakers as a counterpart to the British Limited Company. For the most part, this company type corresponds to the German GmbH. However, the difference is that to found such a company, a minimum nominal capital of only one Euro is necessary (in theory at least).
This makes it possible to found a limited liability corporation with very low equity. However, this leads to a clear disadvantage in that the UG in case of doubt would only have a very low liable capital and therefore a poor credit rating.
In Germany (unlike Great Britain, for example), a GmbH with a minimum nominal capital of 25,000 EUR is the predominant company form for medium-sized corporations.
Therefore, it is generally known in commercial trade that a German Small Limited Company (UG) is only founded because of the low capital requirement and it can therefore be assumed that the founding shareholders have only very limited financial means. For suppliers, this means there is a significantly higher risk of non-payment than for deliveries to a GmbH, for example.
Consequently, the German Small Limited Company form tends to be avoided when compared to other company types which is why we do not advise founding such a company.